03/05/2026
Subject: How to solve a Budget crisis
Hello,
I have patiently listened to politicians and pundits go on and on about how
the government will solve the current budget crisis because
the economy is down and revenues are down, etc. I don't think any of the people
we elected have a clue, and if they were on Wheel of Fortune, they would buy a
Z and call it a vowel.
Listen,
it is not that hard.
The
main problem is that they (politicians and the like) do not think of the
Budget or Revenue as real money. To you and to me, when we talk about our
household budget, we are talking about the money we earn from a paycheck, and
it is real, tangible, and has a beginning and an end. We start with no money.
We earn money from work. We spend money on bills. What is left over (if any) is
a surplus; if none is left over, we are overdrawn, and we owe the bank money.
The
reason we can afford to think this simply is because it is not difficult to
understand, it is real, and it is effective to do it this way.
It
actually is that simple.
Spend
money you do not have, and it is either credit (as in credit cards) or theft.
Spend money from your bank account that you don't have in the bank, and see
what charges are brought against you from the bank. It is very easy to explain,
very easy to understand. Real worry and real pain happen when you do not have
the money to pay the light bill or do not have money for groceries, and you
will be sued if you do not pay for the credit card. Trust me.
If
you borrow more money to cover a shortfall this year, your payments for this
loan increase in future years. This debt increase may solve it this year,
but will make it worse in future years as the payments towards the debt
increase.
This is much the same as running up a big credit card balance.
Using a credit card may help you now, but later, when you have to start paying
for it, you'll need to use real money to cover the expense. If you raise taxes
to cover a revenue shortfall, the folks who pay the taxes make reductions in
other areas because it is real money, and there is only so much of it to go
around. The way we treat it is: if you raise my taxes, I take less vacation
(for example), and your revenues from vacationers are lower because I have less
to spend, and I have to make a reduction somewhere. There is a defined amount
of money to spend. This is what is known as the self-fulfilling prophecy. You
make me pay more; therefore, I have less to spend, so I spend less; and you (the Government) still have less money to work with, and the problem is not any smaller; it is just paid a different way. You robbed Peter and paid Paul with
the same money.
Simple
huh? I think if I can figure this out and you can understand it, then anybody
can. I also think this is what ordinary people do every day when managing real
money. They (our Politicians) need to treat the budget just as you and I do.
They (our Politicians) need to treat it as real money, and they usually don't.
They (our Politicians) forgot that every dime they spend comes from you and me
to begin with.
The
Politicians would have you believe that it is a whole lot more complex than
I've explained. The problem (at least at the Federal level) is that if you run
out of money, you either borrow more or print more. At the State and local level,
you either borrow more, or you try to raise taxes to cover the costs, or you
may try to adjust the money you spend to meet the expected level of revenue. In
all cases, they (our Politicians) forgot to treat incoming money as real
dollars and cents.
Typically,
none of the three things mentioned above actually work, and none of them solves
the problem. It seems like it is due to bookkeeping, but it really isn't
because the issue never goes away, and we keep hearing about it year after
year. Using any or all of these methods just extends the problem into the
future.
If
the Federal government decides it needs more money and prints more money to increase the money supply, it immediately worsens the problem on two levels. First,
because the money supply is larger, each dollar in that supply is worth less. Read
this simple explanation of fractions, and you'll see what I mean.
If you have
one (1) of something and there are five (5) in total, then you have one-fifth
of the overall supply. If you have one (1) of something and there are six (6)
of them in the overall supply, then you have one-sixth of the total supply. The
amount you control is worth less in the overall supply.
When you hear about the
cost of the dollar or how the dollar rates against a foreign currency, this is
what it means. Importing goods from abroad costs more because you have to use
more of your money to pay for it.
Second, because the value of the money you
control is worth a smaller amount, you have to spend more of it to purchase
goods and services. This is because businesses raise prices to maintain
the same level they are used to, to make a profit at the level they need to
continue doing business. This is called inflation.
When you hear someone talk
about the "Buying Power" of money, this is what they mean.
The
next thing they always try seems logical, yet it is not a viable solution
because it never properly accounts for fixed costs and overvalues items we cannot afford, given the revenues we have to work with. Certain things in any
government budget just won't go down all that much when trying to reduce
expenses by making cuts across the board. Things like the costs of housing
prisoners cannot really be reduced. What are you going to do, have fewer guards
or have fewer prisons to house the same number of prisoners?
It is a silly
proposition, and it never works. Ever.
First,
if the President or a Governor says to his staff, "Reduce expenses by Ten
Percent (10 %) in every department," they may make some changes, but they
will never really make a substantial change because they do not really control
the purse strings. It sounds good on the News or in the newspaper, but makes
very little difference because nothing is ever eliminated from the budget. You
just end up with the same things at a smaller level.
Second,
the legislature (or Congress) controls what is spent by appropriating funds to
programs. If the head of State (the Governor or President, for example)
makes too many changes, they can just rewrite the legislation to make it law-enforceable
by the courts, or take it out of the Head of Government's control. This is due
to the influence afforded to selected groups of people routinely called
"special interests".
You then run into the NIMBY effect. Everybody
thinks we need a new prison or a new waste dump, as long as it's NOT In
My BackYard.
We
would never have to cut the number of teachers, fire police officers, close
fire stations, or provide fewer children's services if they had the guts to do
one thing right.
Every
item in every budget should be assigned a priority, just like you and I do. If
we have less money, what do we do? We go to the movies less, we spend less
money at Christmas, we take less expensive vacations, and we buy cheaper goods
instead of expensive ones.
We don't reduce our spending across the board by ten
percent; we eliminate expenses we cannot afford until we spend less than the
required amount. Here is what they ought to do, yet never will do, because
of the influence of "Special Interests".
Let's
say there are 2000 (two thousand) items in a State (or any Government) budget.
There are undoubtedly more, but let's say it is 2000.
Put the highest-priority
items at the top; start with Number One (1), then prioritize, and number every
item until everything in the budget is on the list, numbered One (1) through
Two Thousand (2000). Along with each item, list the cost of each item next to
it.
Now put the accountants to work and figure out, as closely as we can, how much real money we have coming in. Classify every budget expense as one of three
things. One is a need (absolutely must have), the next is a desire (just would like to have), and the next is a want (Would like but could do without).
- Cut all wants
first.
- If that is not enough, cut out the desires.
- If it gets bad enough, you have to cut back on needs. If you absolutely must meet all needs, you can raise
taxes.
- Adjust each line item to the level of what remains; if that is not enough, start with the last item on the list and
eliminate it.
- Keep eliminating until your expenses match your revenue.
Understand: if we do this, we will eliminate things that would be nice
to have but cannot afford at this time. We may not be able to give block grants
to build a new park or to fund some arcane study of some state insect, but we would have teachers, etc., at the level we have to.
- I suspect that
if politicians would do this one simple exercise, we would never lay off a
teacher, a firefighter, or a police officer again. I also think that if they
looked at it this way, we wouldn't mind paying a little more in taxes, because
we would know why they are necessary to raise.
Politicians
will never do this because they have forgotten that their job is to represent
us, not to do things that will ensure their re-election.
What
do you think?
Thankx
for reading my rant.
BigMike
